China's Emergence as a Major Economic Power: Implications for U.S. Interests

China's likely development as a major economic power over the next quarter century holds important implications for U.S. interests. Assuming a continuation of current trends, by 2025 China is likely to become a medium income economy with an estimated $3.5 trillion to $5.8 trillion gross domestic product and a 1.5 billion population. An optimistic view of China in 2025 is for it to be well integrated into the world economy with global standards for trade, investments, finance, labor, and the environment and with a booming investment and trading relationship with the United States conducted in a peaceful world environment. A pessimistic view is that, in 2025, China with a huge and powerful economy and globally competitive industries would be presided over by a politically authoritarian regime with a modern military that views the United States as the enemy and with a government that poses a formidable threat to U.S. interests. The actual China in 2025 will probably contain elements of both these extremes. Chinese economic prosperity depends on its internal micro- and macroeconomic policies and reforms. It also depends on access to markets, foreign capital and technology of the United States and other countries of the world. In recent years, China's economic ties with the U.S., in effect, have resulted in an annual gain of some $60 billion for China from its bilateral trade surplus and direct foreign investment. Any major conflict between the two countries could jeopardize China's economic modernization and undermine its internal stability as well as its international status. Rising Chinese demand for resources, particularly food and energy, as incomes rise and population grows and becomes more urbanized may become a source of conflict. China could seek to assert its claims to disputed islands in the East and South China Sea for their resource and military value. The U.S. could be drawn into these territorial disputes. The status of Taiwan also could become a source of conflict as Beijing has not ruled out the use of force in dealing with Taiwan. With rapidly rising incomes, China could devote more resources to its military, but in view of growing domestic needs, military spending is likely to continue to take second place to economic expansion and modernization. Even if the military share of GDP remains constant, however, China's military spending could rise from about $30-35 billion in 1998 to a projected $135 billion to $225 billion by 2025. The Clinton Administration (as did the Bush Administration) has pursued a basic policy of "engagement" with China along with restrictions on exports of military and certain high-technology exports in response to Chinese activities deemed threatening to U.S. security. The "engagement" policy is based on a view that economic reforms and growth will make China less of a threat to U.S. interests. Those opposed to "engagement," seek a stiffer and less accommodating U.S. position toward China. This is based on a view that a China with greater economic and military power would increasingly threaten U.S. interests. Both sides in the policy debate would have the United States apply firm pressures and maintain a strong military presence as a counterweight to rising Chinese power in Asia.